1. Module 3: Financial Accounting
Health care finance

2. Financial accounting basics, concepts, and assumptions

3. Understand the rudiments of accounting & Why do financial managers need to know accounting
Accounting is the language of business
Books = provide characters = finance = gives us a story
Financial statements provide the clearest picture of the past financial health of the firm
Knowledge of financial accounting is important for the manager who is involved in cost analysis and budgeting
Financial managers need to analyze the accounting records to..
Review PowerPoint
Understand how things have worked in the past
Understand the effects of a course of action
Cost and benefits of an action

4. Understand the fields of accounting practice
Financial accountant = designs procedures for the recording of transactions, supervises that record-keeping function, and is responsible for summarizing records in financial statements
Financial reporting
Company as a whole (Example Emory Health System)
Managerial accountant = take information about the costs of doing business from the financial records. Once information is gathered, they analyze it to find out how costs change with changing volume and how well management is doing at controlling costs
Budgeting and variance analysis
Units/clinics (Primary care clinic)
Auditors = responsible for verifying that financial statements are prepared with GAAP
GAAP
Internal auditor = ensure that adequate records are maintained to support the financial statements that the organization presents

5. Know the Health care financial management professional organizations
HFMA = Education and professional certification program
CHFP = Certified (minimum)
FHFMA = Fellow (Advanced)
Although many senior financial professionals do not hold them, are widely recognized
Look them up – great stuff like Revenue Cycle Management

6. Understand accounting principles
Basic accounting equation = Assets = liabilities + owner’s equity
Assets = all things (tangible and intangible) that in possession to help run the business
Tangible vs. Intangible
Current/Long-term
Liabilities = all items that the entity owes to other
Owner’s equity = difference between the value of the entity’s assets and its liabilities. It is what could be claimed were owned that could be liquidated
NFP do not have equity = net assets

7. Continued MONETARY UNIT  USD
Monetary terms = all items must be written in terms of money
Example: What vehicles are in possession
MONETARY UNIT  USD
ACCOUNTING ENTITY – Identify what organization you’re talking about
Simple
Complex
ACCOUNTING PERIOD  length of time of the financial statement
Month, quarter, year
Fiscal year
Oct-sept = Gov’t
Jan – Dec = Personal
August – July = Education

8. Continued FULL DISCLOSURE  Good and bad
Know how to analyze units/read
150,118 in thousands
Accrual principles = requires that revenues be recorded in the period in which the associated service is performed, and that expenses are recorded in the period in which they incurred, regardless of whether or not cash has changed hands.

9. Explain the fundamental concepts and assumptions of GAAP
Added a document – good explanation of GAAP

10. Describe the current regulatory environment of healthcare accounting
Financial accounting standards board (FASB) = principal rule-making body in financial accounting in the US
Governmental accounting standards board (GASB) = principal rule- making body of organizations owned by government agencies
Securities and Exchange Commission (SEC) = Those organizations whose securities (stocks/bonds) are sold to the public are overseen by the SEC

11. Understand terms of accounting cycle
Accounting cycle = steps that lead from the original bookkeeping entries to financial statement constitute the accounting cycle
Journal entry = First step of accounting cycle where equal debit and credit entries are made in the organization’s general journal
Posted = At regular interviews, perhaps daily or weekly, journal entries are posted in account ledgers
Trial balance = After posting, trial balance is computer which is a test for the consistency and accuracy of the bookkeeping process

12. Understand basic accounting entries = Debits and Credits
Two sides are typically called Debits (left) = credit (right)
Don’t get them confused = Hamburger and Hot dogs
RULES FOR CREDITS AND DEBITS
ASSETS = LIABILITIES (EQUITY)
ASSETS GOES UP = DEBITS
ASSETS GOES DOWN = CREDIT
LIABILITY/EQUITY GOES UP = CREDIT
LIABILITIES/EQUITY GOES DOWN = DEBITS
REVENUES = ARE ALWAYS CREDIT
EXPENSES = ARE ALWAYS DEBITS
Basic accounting entries = double-entry = each transaction will go on to different ledgers (debits and credits)

13. Describe and calculate straight-line and MACRS depreciation (MAKERS)
Depreciation = loss of value (ex. Driving a car off the lot)
Straight-line and MACRS

14. Review the Caveat
Organization subject to income taxation will not want to use straight- line depreciation
Depreciation is an expense that is deducted from net income for calculating tax liability, those organizations that are subject to income taxation can lower bills by increasing depreciation expense
IRS allows use of accelerated depreciation for organizations by using Modified Accelerated Cost Recovery Systems (MACRS) table = gives more useful ways to calculate depreciation
Push-Pull
Should I use depreciation to lower tax rate or not use to show better profit
Use both to demonstrate what’s going on
Taxes and shareholders, etc.  deferred tax liability

15. Understand how to determine inventory using LIFO & FIFO
Consists of goods purchased or made and held for resale
Most health care only carry a small portion in inventory
Provide services not sell goods
Except for: Pharmacies and medical supply firms
Difficult to value
Use a lot of goods and hard to determine how much of each individual unit (example, gloves)
Value of inventory has to be presented in dollar terms
FIFO or LIFO
Affects value of inventory but also the cost of goods sold
Cost of goods sold = Beginning inventory + Net purchases – Ending Inventory

16. Continued: Which one do you use?
Organization’s choice
Doesn’t truly reflect on how organizations are using their inventory, just an accounting method
Use depends on what they are looking towards doing? Tax value or Investor value

17. Understand the three commonly used financial statements
Know the basics = we will talk about analysis in the next module
Get out the list I posted online

18. Balance sheet Snapshot of financial condition at a given time
Might be different from tomorrow
Statement of financial position = shows what you control (assets), what you owe (liabilities) and what you own (equity)
Assets – liabilities – equity

19. Income statement = Statement of operations
Measures a company’s financial performance over a specific accounting period
Quarterly/Annually
Summarizes revenues and expenses for a given time period
Answers the question – is the business making $$
Revenues & Expenses

20. STATEMENT OF CASH FLOW
Summary of assets and liabilities that caused a change in the main cash balances
New type of statement
Late 80s
Why do people want it?
Cash is KING
Better understand cash flow
Flaws of other FS
Balance sheet  snapshot, only one given time
Income  no detailed information
Cash may be generated by other things than operations
Maybe taking on more debt
Selling off assets
3 parts
Cash flow from operating activities
Cash flow from investing activities
Cash flow from financing activities

21. Understand the special cases of hospital revenues
Talked about third-party payer
Charges = Standard fee for services before any adjustments
Adjustments: Discounts for non-HMO managed care plans
Often not tied to cost of providing service not the money they may receive
Contractual allowance = difference between the charge and the amount the hospital has agreed to accept from insurance
Payment on charges
Individual
Pay out of pocket
Insurance
Charity
Donations from a person/money the hospital has set aside to cover it
Uncollected
Bad Debt = money you don’t ever expect to see